In Part 5, we discussed the process of documenting the transaction, and the importance of your professional advisors in the process.
In this part, we consider the complicated question of communications – with employees, customers, and stakeholders. Who do you tell about the deal, and when?
Step 6. Communicate with your Employees, Customers and Other Stakeholders
Managing communication with your employees about the sales process is critical. You want to keep morale and productivity high, avoid key employees from leaving, and prepare the team for the ownership transition.
You’ll need to tell your customers and stakeholders; but is it better to get their buy-in early on, or te4ll them after the fact? Your corporate culture may put high value on transparency. How do you resolve this dilemma?
There’s no one-size-fits-all answer. Each business has to make its own decision based on several factors.
Management. Key management will play an important role in the planning and due diligence, as well as running the business during the acquisition process. They will have to do extra work and put up with more stress. So you may want to bring them in early in the process. Management will generally be concerned with at least two things:
(i) Will They Stay or Go? You may already have had discussions with the buyer to determine which managers the buyer wants to retain, and which if any the buyer plans to replace. If you know that, this is a time to negotiate long-term employment contracts with the ones who will stay, subject to buyer approval, to keep them in place. If no decision has been made yet, you can offer management a “stay” bonus at closing, to keep them motivated and keep them from leaving to work for competitors.
(ii) Can They Offer to Buy the Company? This is more complicated. Managers can be a good buyer, as they know the business and are already invested in it. A management buyout is a classic exit strategy, with its own special issues. If, on the other hand, your managers are bidding against the buyer, they may find themselves in a conflict of interest. Before committing to offer your managers the chance to buy the company, it’s a good idea to see if they as a group can qualify for the necessary purchase financing.
Employees. How much, and when, you tell other employees depends on your company culture. If you have a culture of transparency, your instinct will be to tell them early. If you do, be ready to deal with employee nervousness, possible overreaction, and lack of productivity as their focus is diverted during a potentially long sales process. If employees don’t like the buyer, they may try to derail the deal. If the deal doesn’t close, you may have demoralized employees, and have to do a lot of work to rebuild trust.
For these reasons, management may choose not to tell employees about the deal until it is firm, and the company is ready to announce the deal to the world. Keeping the deal secret can be difficult to do, particularly if there are on-site due diligence visits from the buyer, repeated meetings with management, and other activities the employees see as unusual. In any case, treat the employees well, be careful, and be ready to handle any leaks.
Impact on Employee Agreements. Consider any employment agreements, stock option plans, or other documents that provide for acceleration of stock vesting or other benefits on a sale of the company. Employees with stock options or other benefits will want to know the impact of the sale on their positions.
Customers and Other Stakeholders. You’ll want to have a strategy for telling your key customers and other important stakeholders. You may want to approach key stakeholders in advance to get their buy-in; but consider the downside if the deal doesn’t close. You may decide to tailor the strategy for each stakeholder. Proceed carefully and be prepared to handle leaks and negative reactions.
During the process discussed in prior parts, the buyer is getting a fuller picture of the seller’s business, assets and condition. The question of re-assessing the value of the company may arise. In the next part, we’ll discuss using an earn-out to bridge the gap between the buyer’s and seller’s view of the value of the company.